Cashless Payments Only Credit and Debit Cards

The finance minister, in his budget speech, talked about the idea of making India a cashless society, with the aim of curbing the flow of black money. But what exactly is a cashless economy? It can be defined as a situation in which the flow of cash within an economy is non-existent and all transactions have to be through electronic channels such as direct debit, credit and debit cards, electronic clearing, payment systems such as Immediate Payment Service (IMPS), National Electronic Funds Transfer and Real Time Gross Settlement in India.

In the history of money, the arrival of banks brought in the need for paper currency. Banks had a limited supply of gold and silver and realized that their lending capacity was constrained by this. Hence, they started issuing paper notes in excess of their reserves. This was followed by the governments printing notes that were redeemable for gold and silver. But they printed notes in excess of their reserves. The problem was when people lost confidence in the paper notes and tried to redeem them for gold and silver, the system collapsed, for example, in Germany after the World War I.

This phenomenon of people losing faith in paper money has been repeated often. Whenever governments have printed more currency than reserves, the value of the currency has depreciated.

India continues to be driven by the use of cash; less than 5% of all payments happen electronically. This is due to lack of access to banking for a large part of the population as well as cash being the only means available for many. Large and small transactions continue to be carried out in cash. Even those who can use electronic transfers, use cash.

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